the courage to INNOVATE 2010 annual report WHO WE ARE WHAT’S INSIDE TELUS is a leading national telecommunications CORPORATE REVIEW company in Canada, with $9.8 billion of annual revenue what we offer gatefold and 12.3 million customer connections including 2010 financial and operating highlights gatefold 7.0 million wireless subscribers, 3.7 million wireline TELUS at a glance 1 network access lines, 1.2 million Internet subscribers CEO letter to investors 2 and more than 300,000 TELUS TV® customers. TELUS review of operations 10 provides a wide range of communications products 2010 scorecard and 2011 targets 14 and services including data, Internet protocol (IP), voice, community investment 16 entertainment and video. In support of our philosophy questions and answers 18 to give where we live, TELUS, our team members board of directors and executive leadership team 22 and retirees have contributed $211 million to charitable where we are 25 and not-for-profit organizations and volunteered FINANCIAL REVIEW 26 3.7 million hours to local communities since 2000. CFO letter to investors 27 corporate governance 30 OUR VALUES financial and operating statistics 32 management’s discussion and analysis 38 . We embrace change and initiate opportunity consolidated financial statements and notes 113 . We have a passion for growth glossary 170 . We believe in spirited teamwork investor information 172 . We have the courage to innovate corporate social responsibility back cover LIONS JOIN OUR FAMILY At TELUS, we use nature-based imagery to help us communicate our services in a way that is simple and easy to understand. In the next step of our spirited journey, our lion plays a leading role in this year’s THIS AREA TRIMS OFF annual report. What better critter to demonstrate the courage shown by the TELUS team in our relentless pursuit of innovation. 2006 2007 2008 2009 Caution regarding forward-looking statements summary This document contains statements about expected future events and financial and operating performance of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward- looking statements as a number of factors could cause assumptions, actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly this document is subject to the disclaimer and qualified in its entirety by the assumptions (including assumptions for 2011 targets), qualifications and risk factors referred to in Management’s discussion and analysis starting on page 38 of this annual report and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). TELUS disclaims any intention or obligation to update or revise forward-looking statements, except as required by law, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance. All financial information is reported in Canadian dollars unless otherwise specified. Copyright © 2011 TELUS Corporation. All rights reserved. Certain products and services named in this report are trademarks. The symbols ™ and ® indicate those owned by TELUS Corporation or its subsidiaries. All other trademarks are the property of their respective owners. WHAT WE OFFER WIRELESS We provide integrated digital wireless voice and data services on our nationwide wireless networks. We are unique in the Canadian market as we operate Canada’s fastest* coast-to-coast HSPA+ network, as well as CDMA and Mike® iDEN network technologies. TELUS offers customers the widest choice of wireless solutions to best meet their needs. Digital voice: Postpaid, Pay & Talk® prepaid and Mike all-in-one services including TELUS Push to Talk®, which cover 99% of Canadians, with international roaming to more than 200 countries Data: Web browsing, social networking, text, picture, video and instant messaging, images, ringtones, TELUS mobile TV®, video on demand, TELUS mobile radio®, downloadable music and the latest wireless mobile applications Devices: Leading smartphones, mobile Internet keys and tablets; and TELUS Smart Hub mobile Wi-Fi providing Internet access and simultaneous voice service. *Based on TELUS’ tests of data throughput speeds in large Canadian urban centres available from national high-speed packet access plus (HSPA+) service providers. Limitations apply. See the term “fastest” in the Glossary for details. WIRELINE We are a full-service incumbent local exchange carrier in B.C., Alberta and Eastern Quebec offering a wide range of telecommunications products to consumers including residential phone, Internet access and television and entertainment services. Nationally, we provide communications and IT solutions for businesses including IP, voice, video, data and managed solutions. THIS AREA TRIMS OFF Voice: Reliable phone service with long distance and call files and applications with critical applications stored in TELUS’ management services intelligent Internet Data Centres Internet: Secure Optik High SpeedTM Internet access service Healthcare: TELUS Health Solutions provides claims manage- with a comprehensive suite of security solutions ment solutions, hospital-to-home technology, patient records TELUS TV: High-definition (HD) entertainment service featuring at the point of care, and access to essential drug and medical personal video recording (PVR), HD Video on Demand and information through information communication technology. Pay Per View services with Optik TVTM and TELUS Satellite TV®; Optik TV also offers PVR Anywhere, Remote Recording and use of Xbox 360 as a set-top box IP networks and applications: Leading-edge IP networks that offer converged voice, video, data or Internet access on a secure, high-performing network Conferencing and collaboration: Full range of equipment and application solutions to support meetings using phone, video and the Internet Contact centre and outsourcing solutions: Managed solu- tions providing secure, stable, low-cost and scalable infrastructure. TELUS International is a leading provider with sophisticated centres in North America, Central America and Asia Hosting and managed IT: Ongoing assured availability of telecommunications, networks, servers, databases, 2010 FINANCIAL AND OPERATING HIGHLIGHTS % change % change ($ in millions except per share amounts) 2010 2009 2010 to 2009 2008 2010 to 2008 Income Operating revenues $ß 9,779 $ß 9,606 1.8 $ß 9,653 1.3 EBITDA1 $ß 3,643 $ß 3,491 4.4 $ß 3,779 (3.6) Operating income $ß 1,908 $ß 1,769 7.9 $ß 2,066 (7.6) Net income attributable to common and non-voting shares $ß 1,034 $ 998 3.6 $ß 1,128 (8.3) Earnings per share (EPS) – basic $ß 3.23 $ß 3.14 2.9 $ß 3.52 (8.2) EPS – basic, as adjusted2 $ß 3.26 $ß 2.84 14.8 $ß 3.39 (3.8) Dividends declared per share $ß 2.00 $ß 1.90 5.3 $ß 1.825 9.6 Dividend payout ratio (%)3 65 61 – 54 – Financial position Total assets $ß19,599 $ß19,219 2.0 $ß19,021 3.0 Net debt4 $ß 6,869 $ß 7,312 (6.1) $ß 7,286 (5.7) Owners’ equity $ß 8,201 $ß 7,575 8.3 $ß 7,108 15.4 Return on common equity (%) 13.1 13.4 – 16.0 – Market capitalization of equity5 $ß14,332 $ß10,642 34.7 $ß11,483 24.8 Liquidity and capital resources Cash from operations $ß 2,546 $ß 2,904 (12.3) $ß 2,819 (9.7) Capital expenditures $ß 1,721 $ß 2,103 (18.2) $ß 1,859 (7.4) Payment for wireless spectrum $ – $ – – $ 882 – Free cash flow (before dividends)6 $ 947 $ 485 95.3 $ 361 162.3 Net debt to EBITDA ratio7 1.8 2.0 – 1.9 – Customer connections (as at December 31) Wireless subscribers (000s) 6,971 6,524 6.9 6,129 13.7 Network access lines (000s)8 3,739 3,966 (5.7) 4,176 (10.5) Internet subscribers (000s) 1,229 1,215 1.2 1,220 0.7 TV subscribers (000s)9 314 170 84.7 78 302.6 Total customer connections (000s) 12,253 11,875 3.2 11,603 5.6 1 Earnings before interest, taxes, depreciation and amortization, calculated as Operating revenues less Operations expense and Restructuring costs. 2 Excludes positive income tax-related adjustments of nine cents per share in 2010, 52 cents per share in 2009 and 13 cents per share in 2008, offset by debt redemption losses of 12 cents per share in 2010 and 22 cents per share in 2009. 3 Last quarterly dividend declared per share, in the respective reporting period, annualized, divided by the sum of Basic earnings per share reported in the most recent four quarters. 4 The summation of Long-term debt excluding unamortized debt issuance cost, current maturities of Long-term debt, net deferred hedging liability related to U.S. dollar Notes, and proceeds from securitized accounts receivable, less Cash and temporary investments. 5 Market value based on year-end closing share prices and shares outstanding. 6 EBITDA as reported, deducting donations expense and securitization fees, adjusted for payments in excess of expense for share-based compensation, restructuring initiatives and defined benefit plans, and deducting cash interest, cash income tax, capital expenditures and payment for wireless spectrum. 7 Net debt to EBITDA, where EBITDA excludes Restructuring costs. 8 Historical Network access lines updated for 2009 and 2008 to reflect prior period reporting adjustments. 9 TV subscribers consists of TELUS Optik TV and TELUS